kottke.org posts about Michael Lewis
Michael Lewis's new book about high-frequency trading dropped on Monday with less than 24 hours notice and the media is scrambling to catch up. There's plenty of love for Lewis and his books out there, but Tyler Cowen has been linking to some critiques. For Bloomberg, Matt Levine writes:
In my alternative Michael Lewis story, the smart young whippersnappers build high-frequency trading firms that undercut big banks' gut-instinct-driven market making with tighter spreads and cheaper trading costs. Big HFTs like Knight/Getco and Virtu trade vast volumes of stock while still taking in much less money than the traditional market makers: $688 million and $623 million in 2013 market-making revenue, respectively, for Knight and Virtu, versus $2.6 billion in equities revenue for Goldman Sachs and $4.8 billion for J.P. Morgan. Even RBC made 594 million Canadian dollars trading equities last year. The high-frequency traders make money more consistently than the old-school traders, but they also make less of it.
And here's Matthew Philips on What Michael Lewis Gets Wrong About High-Frequency Trading:
1. HFT doesn't prey on small mom-and-pop investors. In his first two TV appearances, Lewis stuck to a simple pitch: Speed traders have rigged the stock market, and the biggest losers are average, middle-class retail investors-exactly the kind of people who watch 60 Minutes and the Today show. It's "the guy sitting at his ETrade account," Lewis told Matt Lauer. The way Lewis sees it, speed traders prey on retail investors by "trading against people who don't know the market."
The idea that retail investors are losing out to sophisticated speed traders is an old claim in the debate over HFT, and it's pretty much been discredited. Speed traders aren't competing against the ETrade guy, they're competing with each other to fill the ETrade guy's order.
And Felix Salmon:
This vagueness about time is one of the weaknesses of the book: it's hard to keep track of time, and a lot of it seems to be an exposé not of high-frequency trading as it exists today, but rather of high-frequency trading as it existed during its brief heyday circa 2008. Lewis takes pains to tell us what happened to the number of trades per day between 2006 and 2009, for instance, but doesn't feel the need to mention what has happened since then. (It is falling, quite dramatically.) The scale of the HFT problem - and the amount of money being made by the HFT industry - is in sharp decline: there was big money to be made once upon a time, but nowadays it's not really there anymore. Because that fact doesn't fit Lewis's narrative, however, I doubt I'm going to find it anywhere in his book.
Michael Lewis (The Big Short, Liar's Poker) is back with another book about the financial markets: Flash Boys: A Wall Street Revolt. It's the story of high-frequency trading and the traders who are fighting against it.
Flash Boys is about a small group of Wall Street guys who figure out that the U.S. stock market has been rigged for the benefit of insiders and that, post-financial crisis, the markets have become not more free but less, and more controlled by the big Wall Street banks. Working at different firms, they come to this realization separately; but after they discover one another, the flash boys band together and set out to reform the financial markets. This they do by creating an exchange in which high-frequency trading-source of the most intractable problems-will have no advantage whatsoever.
The characters in Flash Boys are fabulous, each completely different from what you think of when you think "Wall Street guy." Several have walked away from jobs in the financial sector that paid them millions of dollars a year. From their new vantage point they investigate the big banks, the world's stock exchanges, and high-frequency trading firms as they have never been investigated, and expose the many strange new ways that Wall Street generates profits.
From a Bloomberg article about the book:
His latest target, high-frequency trading, comprises a diverse set of software-driven strategies that have spread from U.S. equity markets to most developed countries as computer power grew and regulators tried to break the grip of centralized exchanges. While the tactics vary, they usually employ super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies on more than 50 public and private venues that make up the American equities market.
I don't know too much about it but from what I've read, high-frequency trading seems to involve huge Wall Street banks using the Office Space/Richard-Pryor-in-Superman-III trick of shaving fractions of a penny off of trillions of trades every year, except that it's perfectly legal. The NY Times has an excerpt of the book to further whet your appetite.
Michael Lewis made the case in The Blind Side that football players are the smartest in sports because the game is complex and moves fast. For the New Yorker, Nicholas Dawidoff takes a look at what makes a football player smart.
The Redskins' London Fletcher is undersized and thirty-eight years old, but he's been able to play for so long because he is a defensive Peyton Manning: seeing the game so lucidly, yelling out the offensive play about to unfold, changing alignments before the snap, organizing the field in real time. Similarly, Lavonte David, who has been with the Tampa Bay Buccaneers for two years, is just two hundred and thirty-four pounds -- ten to fifteen pounds lighter than most at his position -- the Wonderlic scores out on the Internet for him are not especially high, and, like all players, he makes the occasional boneheaded play. But he possesses dedicated study habits and a football clairvoyance that, come Sunday, finds him ignoring the blocking flow only at the one moment during a game when the offense runs the ball away from it.
The Hall of Fame Minnesota Vikings defensive lineman Alan Page weighed two hundred and forty-five pounds, the dimension of a modern fullback. Even so, Page was terrifying. His forty-yard-dash time wasn't anything special, either, but he says that he could run down faster opponents because he always had sense where he was in relation to the blur of bodies around him-he could "understand the situation." Page is now an Associate Justice on the Minnesota Supreme Court. "Being a football player requires you to take your emotional self to places that most people shouldn't go," he said. "You wouldn't want to get to know the person who was in my head on a football field. I likely see some of these people in my current job -- those who can't control that person -- and they do not very nice things."
I asked him, "You could control that person on a field?"
"Most of the time," Page said.
The safety, standing at the rear of the defense, must compensate for the mistakes of others; football intelligence matters more at this position than any other on the defense. At five-eight, a hundred and eighty-eight pounds, the Bills safety Jim Leonhard, a nine-year veteran, is among the smallest and also the slowest starting defensive backs in the game. And yet, watching him on film, he appears to teleport to the ball. Leonhard's name seems to enter any conversation about football intelligence; he knows every teammate's responsibilities in every call, and understands the game as twenty-two intersecting vectors. "He'd walk off the bus and you'd think he was the equipment manager," Ryan Fitzpatrick said. "He's still in the league because he's the quarterback of the defense."
Michael Lewis profiled Barack Obama for the October issue of Vanity Fair. The full version
isn't available online yet (and I have a hunch they'll keep it that way) is here, but the excerpts might just compell me into a purchase.
At play, the president wears red-white-and-blue Under Armor high-tops, but at work it's strictly blue or gray suits. "I'm trying to pare down decisions. I don't want to make decisions about what I'm eating or wearing. Because I have too many other decisions to make," he tells Lewis. "You need to focus your decision-making energy. You need to routinize yourself. You can't be going through the day distracted by trivia." Lewis says that if he were president he might keep a list in his head. "I do," Obama adds. "That's my last piece of advice to you. Keep a list."
That bit reminds me of this piece on Roger Federer.
I got another sense, however: a sense that he was conserving focus. Fed went through all his subsidiary responsibilities as the President of Tennis (as Steve Tignor calls him) without concentrating on anything, or at least on as few things as possible.
Concentration takes mental energy, as anyone who has fought off five break points before shanking a ball on the sixth knows. And whenever I saw Federer on the grounds, he seemed to be using as little of it as possible. Practicing with Nicolas Kiefer on Ashe a few days before the tournament, he mostly just messed around. He would hit a few familiar Federer shots, the heavy forehand, the penetrating slice, then shank a ball and grin, or yell. Either way, he wasn't really concentrating all that hard.
And is it possible that Obama has read one of my favorite books about technology, Tom Standage's The Victorian Internet?
Obama points to the 1849 patent model of Samuel Morse's first telegraph: "This is the start of the Internet right here," he tells Lewis.
Update: Aha! It looks like Vanity Fair just posted the whole thing online. (via @wistdom)
Michael Lewis continues his financial tour of the world with a stop in Germany. What, he asks, will the Germans do about the weakening financial situation in Europe and, more to Lewis' point, why will they do it?
The deputy finance minister further disturbs my wild assumptions about him by speaking clearly, even recklessly, about subjects most finance ministers believe it is their job to obscure. He offers up, without much prompting, that he has just finished reading the latest unpublished report by I.M.F. investigators on the progress made by the Greek government in reforming itself.
"They have not sufficiently implemented the measures they have promised to implement," he says simply. "And they have a massive problem still with revenue collection. Not with the tax law itself. It's the collection which needs to be overhauled."
Greeks are still refusing to pay their taxes, in other words. But it is only one of many Greek sins. "They are also having a problem with the structural reform. Their labor market is changing-but not as fast as it needs to," he continues. "Due to the developments in the last 10 years, a similar job in Germany pays 55,000 euros. In Greece it is 70,000." To get around pay restraints in the calendar year the Greek government simply paid employees a 13th and even 14th monthly salary-months that didn't exist. "There needs to be a change of the relationship between people and the government," he continues. "It is not a task that can be done in three months. You need time." He couldn't put it more bluntly: if the Greeks and the Germans are to coexist in a currency union, the Greeks need to change who they are.
Michael Lewis' next book will be out in October; the subtitle is Travels in the New Third World. It's a business book about the economic bubbles he's been writing about in Ireland, Iceland, Greece, and the US.
The tsunami of cheap credit that rolled across the planet between 2002 and 2008 was more than a simple financial phenomenon: it was temptation, offering entire societies the chance to reveal aspects of their characters they could not normally afford to indulge.
Icelanders wanted to stop fishing and become investment bankers. The Greeks wanted to turn their country into a pi~nata stuffed with cash and allow as many citizens as possible to take a whack at it. The Germans wanted to be even more German; the Irish wanted to stop being Irish.
Michael Lewis's investigation of bubbles beyond our shores is so brilliantly, sadly hilarious that it leads the American reader to a comfortable complacency: oh, those foolish foreigners. But when he turns a merciless eye on California and Washington, DC, we see that the narrative is a trap baited with humor, and we understand the reckoning that awaits the greatest and greediest of debtor nations.
No Kindle version available yet, just like last time. If you'd like to see one, click on the "I'd like to read this book on Kindle" below the cover image. (thx, brian)
Update: Just got word from Lewis' publisher that the ebook version (including Kindle) will be available the same day as the hardcover.
That's the title of an article written by Michael Lewis in 1989.
A big quake has hit Tokyo roughly every 70 years for four centuries: 1923, 1853, 1782, 1703, 1633.
Michael Lewis continues his tour of economic disasters -- he wrote about Greece and Iceland for Vanity Fair and wrote an entire book on the US subprime mess -- with a piece on Ireland and the country's spectacular rise in becoming Europe's mightiest economic engine and even steeper fall to third-world economic mess.
Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers set some kind of record for destruction. Theo Phanos, a London hedge-fund manager with interests in Ireland, says that "Anglo Irish was probably the world's worst bank. Even worse than the Icelandic banks."
Ireland's financial disaster shared some things with Iceland's. It was created by the sort of men who ignore their wives' suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places -- trophy companies in Britain, chunks of Scandinavia -- the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years.
In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it's 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit -- which three years ago was a surplus -- is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.
Of all the stories I've heard about the recent financial crisis -- the high-risk mortgage loans, the CDOs, the credit default swaps, the Icelandic crisis -- the story of the collapse of the Greek economy by Michael Lewis in the October issue of Vanity Fair is the craziest. And it's the only one involving monks.
The tsunami of cheap credit that rolled across the planet between 2002 and 2007 has just now created a new opportunity for travel: financial-disaster tourism. The credit wasn't just money, it was temptation. It offered entire societies the chance to reveal aspects of their characters they could not normally afford to indulge. Entire countries were told, "The lights are out, you can do whatever you want to do and no one will ever know." What they wanted to do with money in the dark varied. Americans wanted to own homes far larger than they could afford, and to allow the strong to exploit the weak. Icelanders wanted to stop fishing and become investment bankers, and to allow their alpha males to reveal a theretofore suppressed megalomania. The Germans wanted to be even more German; the Irish wanted to stop being Irish. All these different societies were touched by the same event, but each responded to it in its own peculiar way.
As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a pinata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past decade the wage bill of the Greek public sector has doubled, in real terms-and that number doesn't take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece's rail passengers into taxicabs: it's still true. "We have a railroad company which is bankrupt beyond comprehension," Manos put it to me. "And yet there isn't a single private company in Greece with that kind of average pay." The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland's. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as "arduous" is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average-and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.
Read the whole thing...it's insane.
The Big Short by Michael Lewis is finally out for the Kindle (well, it came out two weeks ago, about a month after the hardcover). You might remember the hubbub about the lack of a Kindle version.
Anyway, the book is excellent; I read it pretty much nonstop until finished. Lewis cleverly recasts the story of one of the biggest financial disasters in American history as a heroic tale. Heroic!
Vanity Fair has a lengthy excerpt from Michael Lewis' new book The Big Short (out today).
As often as not, he turned up what he called "ick" investments. In October 2001 he explained the concept in his letter to investors: "Ick investing means taking a special analytical interest in stocks that inspire a first reaction of 'ick.'" A court had accepted a plea from a software company called the Avanti Corporation. Avanti had been accused of stealing from a competitor the software code that was the whole foundation of Avanti's business. The company had $100 million in cash in the bank, was still generating $100 million a year in free cash flow-and had a market value of only $250 million! Michael Burry started digging; by the time he was done, he knew more about the Avanti Corporation than any man on earth. He was able to see that even if the executives went to jail (as five of them did) and the fines were paid (as they were), Avanti would be worth a lot more than the market then assumed. To make money on Avanti's stock, however, he'd probably have to stomach short-term losses, as investors puked up shares in horrified response to negative publicity.
"That was a classic Mike Burry trade," says one of his investors. "It goes up by 10 times, but first it goes down by half." This isn't the sort of ride most investors enjoy, but it was, Burry thought, the essence of value investing. His job was to disagree loudly with popular sentiment. He couldn't do this if he was at the mercy of very short-term market moves, and so he didn't give his investors the ability to remove their money on short notice, as most hedge funds did. If you gave Scion your money to invest, you were stuck for at least a year.
Really fascinating. In a recent review, Felix Salmon called The Big Short "probably the single best piece of financial journalism ever written".
Unsurprisingly, the MLB teams currently drawing the most benefit from the lessons of Moneyball are those with lots of money operating in big markets.
Well, of course, the big-market teams figured it out. They hired their own Ivy League consultants. They bought even better computers. Walks is only one tiny aspect in it ... but who leads the American League in walks this year? The New York Yankees. Last year? The Boston Red Sox. The year before that? The Boston Red Sox. And so it goes. Now, six years later, it seems to me that the small-market teams are really grasping and trying to find some loophole, some opening that will allow them to win in this tough financial environment.
The combination of Pitt and Soderbergh and Lewis wasn't enough to keep the Moneyball movie afloat...Sony canceled it "days before shooting was to begin".
Accounts from more than a dozen people involved with the film, who spoke on the condition of anonymity to avoid damaging professional relationships, described a process in which the heady rush toward production was halted by a studio suddenly confronted by plans for something artier and more complex than bargained for.
Sony was probably looking for something more BIG RED TEXTish.
Michael Lewis' book about the ongoing financial collapse has a name: The Big Short: Inside the Doomsday Machine.
A brilliant account -- character-rich and darkly humorous -- of how the U.S. economy was driven over the cliff. Truth really is stranger than fiction. Who better than the author of the signature bestseller Liar's Poker to explain how the event we were told was impossible -- the free fall of the American economy -- finally occurred; how the things that we wanted, like ridiculously easy money and greatly expanded home ownership, were vehicles for that crash; and how shareholder demand for profit forced investment executives to eat the forbidden fruit of toxic derivatives.
It's not out until November 2 but you can pre-order it from Amazon. (thx, brian)
Update: The book is out on March 15 and there's an excerpt in the April issue of Vanity Fair.
Michael Oher, the subject of Michael Lewis' The Blind Side, got drafted in the first round of the NFL Draft by the Baltimore Ravens. Oher was chosen 23rd.
Update: Lewis comments on the draft here and here. (via unlikely words)
Wait, Steven Soderbergh is directing the film adaptation of Michael Lewis' Moneyball? When did this wonderfulness happen?!! Last I heard, the director was the guy who did Marley & Me. Perhaps Pitt put the kibosh on that and lobbied for Soderbergh? (via fimoculous)
Jonas Moody, who has lived on Iceland for the past seven years, takes Michael Lewis to task for some inaccuracies and other odd things in his Vanity Fair piece about the country's economic crisis.
5. "Icelanders are among the most inbred human beings on earth -- geneticists often use them for research."
Now this is insulting. Icelanders' DNA shows their roots to be a healthy mix between Nordic Y chromosomes and X chromosomes from the British Isles. The reason genetic-research company deCODE uses Icelandic genes for its research is not because the codes are so homogeneous, but because the population has kept excellent genealogical records dating back thousands of years.
I sort of shrugged my shoulders at this stuff when I read the piece and forged ahead for the financial meat and potatoes, but it doesn't read so well when collected all in one place like this. Was the piece supposed to be a farce? If not, it doesn't reflect well on Lewis or his editors at VF. (thx, micah)
Speaking, as we briefly were, of Big Think, they have several short video interviews of Michael Lewis about the current financial crisis and other things. Worth a look see.
Michael Lewis, who is seemingly cranking out 10,000 words a day about finance and sports these days, writes in the pages of Vanity Fair about the Icelandic financial collapse. It's an amazing story.
That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. "A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs," the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. "And apparently not very well." They bought stakes in businesses they knew nothing about and told the people running them what to do -- just like real American investment bankers!
But it was all essentially make-believe.
A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets -- the banks, soccer teams, etc. Since the entire world's assets were rising -- thanks in part to people like these Icelandic lunatics paying crazy prices for them -- they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. "They created fake capital by trading assets amongst themselves at inflated values," says a London hedge-fund manager. "This was how the banks and investment companies grew and grew. But they were lightweights in the international markets."
Michael Lewis talks a little about his writing process.
I've written in awful enough situations that I know that the quality of the prose doesn't depend on the circumstance in which it is composed. I don't believe the muse visits you. I believe that you visit the muse. If you wait for that "perfect moment" you're not going to be very productive.
Michael Lewis cast his Moneyball lens on basketball in this week's NY Times Magazine. The Billy Beane of the roundball story, more or less, is Shane Battier, a guard for the Houston Rockets. Battier doesn't seem like a great basketball player, but he does a lot of little things that helps his team win.
Battier's game is a weird combination of obvious weaknesses and nearly invisible strengths. When he is on the court, his teammates get better, often a lot better, and his opponents get worse -- often a lot worse. He may not grab huge numbers of rebounds, but he has an uncanny ability to improve his teammates' rebounding. He doesn't shoot much, but when he does, he takes only the most efficient shots. He also has a knack for getting the ball to teammates who are in a position to do the same, and he commits few turnovers. On defense, although he routinely guards the N.B.A.'s most prolific scorers, he significantly reduces their shooting percentages.
Battier sounds like an intriguing fellow but the most interesting part of the article is about how the players' incentives differ in basketball from other major American sports.
There is a tension, peculiar to basketball, between the interests of the team and the interests of the individual. The game continually tempts the people who play it to do things that are not in the interest of the group. On the baseball field, it would be hard for a player to sacrifice his team's interest for his own. Baseball is an individual sport masquerading as a team one: by doing what's best for himself, the player nearly always also does what is best for his team. "There is no way to selfishly get across home plate," as Morey puts it. "If instead of there being a lineup, I could muscle my way to the plate and hit every single time and damage the efficiency of the team -- that would be the analogy. Manny Ramirez can't take at-bats away from David Ortiz. We had a point guard in Boston who refused to pass the ball to a certain guy."
No wonder it's so hard to build a basketball team with the right balance of skills and personalities. Take five guys, put them on a court, let them do whatever they think they need to do to get a larger contract next year, and maybe you get some pretty good results. Now, consider a situation where the plus/minus statistic is the basis for player salaries and all of sudden, players need to figure out how they can make the other four guys on the floor better. And while everyone is making adjustments to each others' games, each player is adjusting to everyone else's game, and the process becomes this fragile and intricate nonlinear dance that results in either beautiful chaos or the 1972-73 Philadelphia 76ers.
PS. The brief author bio at the end of the article continues the recent game of "next book" Whack-A-Mole from Lewis. Since the publication of The Blind Side in 2006, Lewis' next book has been listed in various outlets as being about New Orleans/Katrina, financial panics (which turned out to be an anthology edited by Lewis), his sequel to Liar's Poker about the current financial crisis, and now is listed as "Home Game, a memoir about fatherhood". I give up.
The Atlantic's new business blog has an interview with Michael Lewis.
A related thing is that there was blind faith in the value of financial innovation. Wall Street dreamed up increasingly complicated things, and they were allowed to do it because it was always assumed that if the market wanted it then it made some positive contribution to society. It's now quite clear that some of these things they dreamed up were instruments of doom and should never have been allowed in the marketplace.
In an Op-Ed piece for the NY Times called The End of the Financial World as We Know It, Michael Lewis and David Einhorn explore what checks and balances should have been in place to prevent the US financial markets from running themselves into the ground in search of perpetual short-term gain.
Our financial catastrophe, like Bernard Madoff's pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today's financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that's the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
Here's part 2, in which Lewis and Einhorn propose some possible remedies.
A short interview with Michael Lewis about the book he just edited, Panic: The Story of Modern Financial Insanity. In compiling the stories, Lewis was surprised at how little good writing he could find about upcoming financial hard times.
How little there was worth reprinting. I had six interns digging up all kinds of stuff, and I looked at 20 times the amount of material that appeared in the book. I assumed there would be lots of stories predicting each panic before the panics actually struck. But there was very little. Afterwards you'd have a flurry of literary activity, and then everybody was on to the next thing. Still, there was a common thread: You were watching America's growing financial insanity.
Michael Lewis takes a look at the current financial crisis and traces its roots back to the 1980s and the events chronicled in his book, Liar's Poker. He begins by introducing us to some analysts and investors that saw the whole thing coming. One of those people is Steve Eisman.
"We have a simple thesis," Eisman explained. "There is going to be a calamity, and whenever there is a calamity, Merrill is there." When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman's logic-the logic of Wall Street's pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.
It's a fantastic article, well worth reading to the end...the final dozen paragraphs are the best part of the whole thing. Who knew deviled eggs were so pregnant with metaphor?
As I was reading the article, Matt Bucher dropped a note into my inbox. As hoped for months ago, Lewis is writing a book about this whole mess.
MONEYBALL and THE BLIND SIDE author Michael Lewis's untitled behind-the-scenes story of a few men and women who foresaw the current economic disaster, tried to prevent it, but were overruled by the financial institutions with whom they worked, sold to Star Lawrence at Norton, by Al Zuckerman at Writers House (NA).
The Portfolio piece will definitely find itself into the book, as will this piece on Meredith Whitney, this one on Goldman Sachs, Lewis' subprime parable, and other pieces from Bloomberg, Porfolio, and his upcoming gig at Vanity Fair. One question though...what happens to Lewis' forthcoming book on New Orleans? Did that just disappear?
Michael Lewis rents a mansion in New Orleans and finds in the experience a parable about the thirst of Americans for better housing than they can afford, the subprime mortgage crisis, and the ensuing financial panic.
The real moral is that when a middle-class couple buys a house they can't afford, defaults on their mortgage, and then sits down to explain it to a reporter from the New York Times, they can be confident that he will overlook the reason for their financial distress: the peculiar willingness of Americans to risk it all for a house above their station. People who buy something they cannot afford usually hear a little voice warning them away or prodding them to feel guilty. But when the item in question is a house, all the signals in American life conspire to drown out the little voice. The tax code tells people like the Garcias that while their interest payments are now gargantuan relative to their income, they're deductible. Their friends tell them how impressed they are-and they mean it. Their family tells them that while theirs is indeed a big house, they have worked hard, and Americans who work hard deserve to own a dream house. Their kids love them for it.
Ok, Michael Lewis *is* writing a book about the current financial situation. Sort of. It's called Panic: The Story of Modern Financial Insanity.
When it comes to markets, the first deadly sin is greed. Michael Lewis is our jungle guide through five of the most violent and costly upheavals in recent financial history: the crash of '87, the Russian default (and the subsequent collapse of Long-Term Capital Management), the Asian currency crisis of 1999, the Internet bubble, and the current sub-prime mortgage disaster.
It's out in December so I imagine that it won't include the current Lehman/AIG/Merrill/bailout kerfuffle, but that's what "with new material" paperbacks are for. (thx, paul)
Michael Lewis looks on the bright side of the current financial crisis and finds five positive aspects.
Our willingness to believe that we can hire some expert to tell us how to outperform markets is a big problem, with big consequences. It underpins Wall Street's brokerage operations, for instance, and leads to a lot more people giving out financial advice than should be giving out financial advice. Thanks to the current panic many Americans have learned that the experts who advise them what to do with their savings are, at best, fools.
God I hope he writes a book about all this someday, sort of a Liar's Poker 2. He can call it Fool's Roulette or something.
Michael Lewis, author of Moneyball, The Blind Side, etc, has moved back to his native New Orleans to work on a book "that will center on the restoration of New Orleans". Back in Aug 2007, Lewis wrote an article for the NY Times Magazine about Hurricane Katrina and the economics of catastrophe. (thx, brian)
Yay! Today is sub-prime mortgage day on kottke.org, I guess. The collapse of the sub-prime mortgage market took everyone on Wall Street by surprise...except Goldman Sachs, which earned $11.6 billion in 2007 when everyone else lost money. How'd they do it? Michael Lewis says that Goldman went against the flow in shorting sub-prime mortgages by assuming that the entire rest of the industry, including their own expert and extremely well-paid traders, were, as Lewis puts it, "a bunch of idiots".
Update: Here's the WSJ article mentioned by Lewis in the above piece. (thx, andy)
Michael Lewis on the unique role that kickers occupy in professional sports.
There is still some faint resistance to the notion that a kicker could ever really do anything great. Brett Favre can throw 10 more game-ending interceptions and fans will still cherish his moments of glory. Reggie Bush may fumble away a championship and still end up being known for the best things he ever does. Even offensive linemen whose names no one remembers are permitted to end their days basking in the reflected glory of having been on the field. Kickers alone are required to make their own cases.
Maybe soccer goalies can identify with NFL kickers?
Michael Lewis updates us on the Wall Street he wrote about in the excellent Liar's Poker. It's not such an alpha male environment anymore:
There is a new deal for the alpha male on Wall Street. He can make his millions, and he can still strut and preen and feel important. What he can't do is sexualize his financial clout. In the late 1980s it was fairly routine for men on Wall Street trading floors to order up strippers; when a prominent bond salesman was fellated in a conference room just off the trading floor his colleagues were more amused than shocked. Not long ago a pair of Morgan Stanley employees was fired for merely attending a strip club in their off hours.
(via david archer)
Michael Lewis on a new way in which insurance companies are evaluating risk with respect to natural catastrophes.
The logic of catastrophe is very different: either no one is affected or vast numbers of people are. After an earthquake flattens Tokyo, a Japanese earthquake insurer is in deep trouble: millions of customers file claims. If there were a great number of rich cities scattered across the planet that might plausibly be destroyed by an earthquake, the insurer could spread its exposure to the losses by selling earthquake insurance to all of them. The losses it suffered in Tokyo would be offset by the gains it made from the cities not destroyed by an earthquake. But the financial risk from earthquakes -- and hurricanes -- is highly concentrated in a few places. There were insurance problems that were beyond the insurance industry's means. Yet insurers continued to cover them, sometimes unenthusiastically, sometimes recklessly.
For the four or five of you that haven't yet read Moneyball, the entire thing is available online, courtesy of a Russian site presumably out of the reach of the American legal system.
Due to problems off the field, defensive tackle Walter Thomas hasn't played a lot of college ball. But his stats -- 6-foot-5, 370 pounds, XXXXXXL jersey, runs the 40 in 4.9, can do backflips and handsprings, benches 475 pounds -- guarantee that he'll be drafted into the NFL this weekend. Shades of Michael Oher, Michael Lewis' subject in The Blind Side. Also, this may be the first NY Times article to use the phrase "dadgum Russian gymnast".
Long audio interview with Michael Lewis by economist Russ Roberts on "the hidden economics of baseball and football". "Michael Lewis talks about the economics of sports -- the financial and decision-making side of baseball and football -- using the insights from his bestselling books on baseball and football: Moneyball and The Blind Side. Along the way he discusses the implications of Moneyball for the movie business and other industries, the peculiar ways that Moneyball influenced the strategies of baseball teams, the corruption of college football, and the challenge and tragedy of kids who live on the streets with little education or prospects for success."
The NY Times Book Review's 100 notable books of 2006. Making the list are several kottke.org notable books: The Ghost Map, The Omnivore's Dilemma, Consider the Lobster, and The Blind Side.
Michael Lewis profile of Cowboys coach Bill Parcells. I don't know if this is a typical situation, but the Cowboys seem like a pretty dysfunctional organization.
In addition to the race and class aspect that interests me about the book, The Blind Side is, oh, by the way, also about the sport of football, specifically the left tackle position. In the 1980s, the quarterback became increasingly important in the offensive scheme and rushing linebackers, specifically Lawrence Taylor, became a bigger part of the defensive scheme. This created a problem for the offensive line: protect the valuable & fragile quarterback from the huge, fast likes of Lawrence Taylor, whose Joe Theismann-leg-snapping exploits you've seen replayed on a thousand SportsCenters. The solution to this problem was to hire giant-handed men the size of houses who move like ballerinas to protect the blind side of the quarterback. Thus has the left tackle position become the second-highest paid position in the league behind the quarterbacks themselves.
When I read Lewis' profile of Michael Oher in the New York Times, I had a crazy thought: why not cut to the chase and make the men fit to play the left tackle position into quarterbacks instead? Lewis covers this briefly near the end of the book in relating the story of Jonathan Ogden, left tackle for the Baltimore Ravens:
Now the highest paid player on the field, Ogden was doing his job so well and so effortlessly that he had time to wonder how hard it would be for him to do some of the other less highly paid jobs. At the end of that 2000 season, en route to their Super Bowl victory, the Ravens played in the AFC Championship game. Ogden watched the Ravens' tight end, Shannon Sharpe, catch a pass and run 96 yards for a touchdown. Ravens center Jeff Mitchell told The Sporting News that as Sharpe raced into the end zone, Ogden had turned to him and said, "I could have made that play. If they had thrown that ball to me, I would have done the same thing."
Having sized up the star receivers, Ogden looked around and noticed that the quarterbacks he was protecting were...rather ordinary. Here he was, leaving them all the time in the world to throw the ball, and they still weren't doing it very well. They kept getting fired! Even after they'd won the Super Bowl, the Ravens got rid of their quarterback, Trent Dilfer, and gone looking for a better one. What was wrong with these people? Ogden didn't go so far as to suggest that he should play quarterback, but he came as close as any lineman ever had to the heretical thought.
Many of the left tackles that Lewis talks about in the book can run faster than most quarterbacks, they can throw the ball just as far or farther (as a high school sophomore, Michael Oher could stand at the fifty-yard line and toss footballs through the goalposts), possess great athletic touch and finesse, have the intellect to run an offense, move better than most QBs, know the offense and defense as well as the QB, are taller than the average QB (and therefore has better field vision over the line), and presumably, at 320-360 pounds, are harder to tackle and intimidate than a normal QB. Sounds like a good idea to me.
Variety is reporting that the movie rights for Michael Lewis' The Blind Side have been purchased by Fox. Most of the article is behind a paywall, but here's the relevant bit:
After interest from multiple buyers, which included New Line and Mandalay, the "Blind Side" deal closed for $200,000 against $1.5 million and also includes $250,000 in deferred compensation. Gil Netter will produce for Fox, which did not confirm the value of the deal.
Norton released the book yesterday, but Hollywood interest was sparked when the New York Times Magazine ran an excerpt in its Sept. 24 issue.
Story, which was titled "The Ballad of Big Mike," centered on Michael Oher, a poor, undereducated 344-pound African-American teenager in Memphis, whose father was murdered and whose mother was a crack addict. Oher had been shuffled through the public school system, despite his 0.6 grade point average and missing weeks of classes each year. But his tremendous size and quickness attracted the interest of a wealthy white couple who took him in and groomed him both athletically and academically to become one of the top high school football prospects in the country.
I'm hoping against hope that if the movie ever gets made, the interesting class and racial issues the book raises aren't completely steamrollered out of the story in favor of pure uplifting entertainment. (thx, jen)
Over the weekend, my thoughts kept returning to Michael Lewis' story about Michael Oher, a former homeless kid who may soon be headed for a sizeable NFL paycheck. Checking around online for reaction reveals a wide range of responses to the story. Uplifting sports story was the most common reaction, while others found it disturbing (my initial reaction), with one or two folks even accusing Lewis and the Times of overt racism. While Lewis left the story intentionally open-ended (that is, he didn't attempt to present any explicit lessons in the text itself), I believe he meant for us to find the story disturbing (or at least thought-provoking).
Just look at the way Lewis tells Oher's story. Oher is never directly quoted; it's unclear if he was even interviewed for this piece (although it's possible he was for another part of the book). Instead he is spoken about and for by his coaches, teachers, and new family...and as much as the article focuses on him, we don't get a sense of who Oher really is or what he wants out of life. (An exception is the great "put him on the bus" story near the end.) He's playing football, was adopted by a rich, white family, graduated from high school, and is attending college, but all that was decided for him and we never learn what Oher wants. Religion is referred to as a driving factor in his adopted family's efforts to help him. Again, no choice there...not even his family or school had any say in the matter, God told them they *had* to save this kid.
Then there's the sports angle, the parallels between Oher's lack of control over his own life and how professional athletes, many from poor economic backgrounds, are treated by their respective teams, leagues, owners, and fans. At one point, Lewis compares Oher's lack of enthusiasm for football's aggression to that of Ferdinand the Bull, a veiled reference to the perception of the professional athlete as an animal whose worth is measured in how big, strong, and fast he is.
So what you've got is a story about rich white people from the American South using religion to justify taking a potentially valuable black man from his natural environment and deciding the course of his life for him. Sound familiar? Perhaps I'm being a little melodramatic, but this can't just be an accident on Lewis' part. As I see it, Oher is Lewis' "blank slate" in a parable of contemporary America, a one-dimensional character representing black America who is, depending on your perspective, either manipulated, exploited, or saved by white America. Not that it's bad that Oher has a home, an education, and a family who obviously cares about him, but does the outcome justify the means? And could Oher even have contributed significantly to his direction in life when all this was happening? Who are we to meddle in another person's life so completely? Conversely, who are we to stand idly by when there are people who need help and we have the means to help them?
I'm not saying Lewis' story has any of the answers to these questions, but I would suggest that in a country where racial differences still matter and the economic gap between the rich and poor is growing, this is more than just an uplifting sports story.
The Ballad of Big Mike, the most intriguing story of a future NFL left tackle you're likely to read. The piece is adapted from Michael Lewis' upcoming book on football, The Blind Side. Lewis previously wrote Moneyball.
Update: Gladwell has read The Blind Side and loved it. "The Blind Side is as insightful and moving a meditation on class inequality in America as I have ever read."
Rethinking Moneyball. Jeff Passan looks at how the Oakland A's 2002 draft class, immortalized in Michael Lewis' Moneyball, has done since then. "It is not so much scouts vs. stats anymore as it is finding the right balance between information gleaned by scouts and statistical analyses. That the Moneyball draft has produced three successful big-league players, a pair of busts and two on the fence only adds to its polarizing nature." Richard Van Zandt did a more extensive analysis back in April.
Great profile by Michael Lewis of Mike Leach, Texas Tech's football coach. Leach "believes that both failure and success slow players down, unless they will themselves not to slow down." 'When they fail, they become frustrated. When they have success, they want to become the thinking-man's football team.'" Must-read article if you're even a casual football fan. Here's another article on Leach from the SJ Merc.
Update: Steven Levitt and the Freakonomist commenters weigh in on Lewis' article. (thx, michael)
Jeff Ma, who was a key member of the infamous MIT blackjack team, notes the turn around of the Oakland A's and the reversal of criticism directed toward GM Billy Beane. Even Steven Levitt, who thinks not too highly of Moneyball, has conceded that maybe Beane and the A's are onto something.
Michael Lewis on socially responsible business practices. I have so much to write about this issue, but a quick link will have to do for now.
Since Lewis writes primarily on business, business folks will undoubtably read Moneyball with an eye toward picking up some pointers on how to run their companies. Some will completely misunderstand what Lewis discovered about major league baseball and beefheadedly apply their new "knowledge". The lesson of Moneyball is not that there are potential employees out there that are cheaper than your current employees. That's the holy grail of large American corporations and exactly what they would want to hear.
As Lewis reports, what Oakland actually did is a) measure player statistics as objectively as they could, b) identify players that perform well in those statistical categories, c) discover that the players they valued were not valued by other teams and were therefore relatively cheap, and d) went out and got the players they wanted at bargain prices. As much as the business person would like to skip directly to step d, it's impossible to determine if that will actually be effective unless you do the a-c analysis first.
Michael Lewis is one of my favorite authors. He's not the smartest or the most clever writer but he weaves deceptively simple stories into larger statements on society and humanity with a skill possessed by very few people doing creative work in any field. I haven't gotten around to reading Moneyball yet, but Liar's Poker is probably his strongest work. It's as hard to put down as any fiction. Great book.
From Requiem for a Cheerleader: Silicon Alley Magazine Is Dead: "You can't have a magazine about unemployed people. You can't have a magazine about people who are taking time off." May I suggest to Mr. Calacanis that his magazine, along with most of the other Internet-oriented magazines published in past 3-4 years that have now -- or are in the process of -- going down the tubes, completely missed the point about the Internet.
The business and financial aspects of the Internet boom were interesting, but there was so much more there. The NY Times, Wired Magazine, and Wired News (among others) understood that and offered more (and continue to offer more) than just IPO news and stories on how much dot com executives make. Maybe now that the financial side of things isn't that interesting anymore, the remaining publications will focus more on the aspects of the Internet that are still interesting**.
** Just so I don't get a ton of email saying, "Well Mr. Smartypants, what is so damn interesting about the Internet then?", there's a whole lot to be said about how the Internet (and more generally, technology) is affecting the people who use it and how, in turn, that's affecting society at large. Michael Lewis, author of Next: The Future Just Happened, has written several articles for the NY Times in this vein:
- Boom Box: "The new technology from Tivo and replay provides the ultimate in television convenience. It will also spy on you, destroy prime time and shatter the power of the mass market."
- Jonathan Lebed: Stock Manipulator, S.E.C. Nemesis -- and 15: The Internet and the increased power of the individual.
- Faking It: The Internet Revolution Has Nothing to Do With the Nasdaq: "If the Internet was giving the world a shove in a certain direction, it was probably because the world already felt inclined to move in that direction. The Internet was telling us what we wanted to become."